Prospects dim as deadline approaches for housing-reform bill

As U.S. lawmakers prepare to work on a bill next week that would overhaul the country’s housing-finance system, analysts say it’s becoming increasingly unlikely that the legislation will become law in 2014.

But that date leaves Congress just about one month to approve the legislation before career-minded lawmakers turn their attention to election season, figures Edwin Groshans of Height Analytics, who thinks there’s a less-than-5% chance for passage in 2014. Making the timeline even tighter is a possible delay for the markup session.

“Time is the enemy and any delays at the committee level would reduce the already small window for action on this topic in 2014,” according to a recent Height Analytics research wrote.

One roadblock to substantial progress in the near term is the chasm between Senate and House proposals about the correct role of government. The Senate plan would create an explicit government guarantee that would kick in after private capital took losses when mortgage-backed securities go bad. Over in the House, Texas Republican Rep. Jeb Hensarling, chairman of the Financial Services Committee, doesn’t want the government in the business of offering such insurance.

The Senate bill from Tim Johnson, Banking Committee chairman and a Democrat of South Dakota, and Idaho’s Mike Crapo, the committee’s top Republican, would also take major steps such as erecting a common securitization platform.

A number of special interests are voicing unease about possible reforms. Small lenders are concerned about disruptions to the current mortgage system. Elsewhere, a coalition of advocates for minority- and lower-income housing issues said the bill would “needlessly make mortgages more expensive and less available.”

“Our sense is that the underlying political dynamics and recent pushback could compel committee leadership to delay a markup in order to address specific legislative concerns and rally support,” said Compass Point Research & Trading’s Isaac Boltansky, who also thinks there’s a less-than-5% chance for passage this year.

Meanwhile, looming over the bill’s fate is Senate Majority Leader Harry Reid, a Democrat of Nevada and scheduler of votes, who has voiced criticism of proposals to get rid of Fannie and Freddie. But there’s pressure from the Obama administration, which wants Congress to move forward with reform. Tuesday afternoon, Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, will speak in New York about the government sponsored enterprises. Last week he said that Congress needs to replace the GSE model with a system in which the private sector takes on greater credit risk.

“Bottom line: only legislation can reshape the housing finance system so that it reflects all the ideals and values we care about: opportunity, fairness and responsibility,” Donovan said.

Jaret Seiberg, an analyst at financial services firm Guggenheim Securities, says there’s as much as a 40% chance that a law will be enacted this year, despite the recent hubbub.

“It doesn’t mean that lobbying groups are not going to write letters and make speeches. This is how it works in Washington. Interest groups need to ensure lawmakers realize how important the issue is. And getting vocal on it now ensures these groups can claim victory when the change is made,” Seiberg wrote.